Mid-cap firms to drive market up on low valuation, earnings prospects

 

A site run by construction firm Fecon. - Photo baodautu.vn

The benchmark VN-Index has gained strongly by 3.12 per cent in the last month to approach 1,000 points.

Boosting the benchmark index are large-cap and mid-cap stocks. The large-cap VN30-Index has risen 5 per cent while the mid-cap VNMID-Index has gained 3.8 per cent during that time, showing investors are keen on both sets of shares.

Large-cap firms have market capitalisation of more than VNĐ10 trillion while mid-cap firms are valued at between VNĐ1-10 trillion.

Đinh Quang Hinh, director of the market strategy division at VNDirect Securities Corporation’s analysis department, told Việt Nam News the inflow of passive capital from exchange-traded funds (ETFs) had boosted the valuation of large-cap stocks on the Hồ Chí Minh Stock Exchange to “quite high levels”.

The average price-to-earnings (P/E) ratio of HOSE-listed large-cap stocks was estimated at 21.4, excluding FLC Faros Construction Corp (ROS), Vingroup (VIC) and Bảo Việt Holdings (BVH) – three stocks with P/E ratios above 50.

“The high valuation of large-cap stocks has trimmed their attractiveness. It is possible that some traders have switched to mid-cap stocks for short-term profits, boosting their prices,” Hinh said, adding mid-cap stocks had been undervalued.

The average P/E ratio of mid-cap stocks was 11.5 – if stocks with P/E ratios being over 50 are excluded – and it was still 30 per cent lower than the large-cap average P/E ratio. Some mid-cap stocks even had P/E ratios below 8.

“However, not all mid-cap stocks have been boosted by this change in investor tastes,” Hinh added.

The key factors for valuing mid-cap stocks are the prospects of a firms’ future business operations and healthy financial reports, he said.

The Vietnamese stock market has entered the third-quarter earnings season, and some mid-cap firms have already reported their quarterly earnings.

Real estate firm Đất Xanh Group (DXG) has estimated its nine-month revenue was up 31 per cent to VNĐ4.52 trillion, with post-tax profit up 20 per cent at VNĐ901 billion.

Constructor Fecon (FCN) is forecast to raise its three-quarter revenue by 8 per cent yearly report to VNĐ1.84 trillion with an increase in post-tax profit of 22 per cent year on year to VNĐ151 billion.

The Power Construction JSC (PC1) last week reported nearly VNĐ4.4 trillion worth of combined revenue in the nine months and VNĐ300.6 billion in post-tax profit.

According to analysts, Việt Nam was likely to maintain a comparatively high GDP growth rate compared to other economies, mainly benefiting from the re-allocation of the global supply chain as investors and businesses try to hedge their risks due to the US-China trade war.

Việt Nam’s GDP growth rate in the third quarter was 7.31 per cent, the General Statistics Office announced last week. The Vietnamese economy is expected to achieve 6.9 per cent GDP growth this year. – VNS